Throw Your Stat Books Out: These Are Rare Times

The statistician in me died a little today when we pushed neutral for the fifth consecutive day. There are no other streaks like this in four years of data. This is the ubiquitous long-tail risk that lingers in the universe, waiting to show up and destroy civilization. Chalk it up as another 2015 anomaly sent to destroy us. This market is like the 90’s in Detroit where most streets were the ‘wrong street’ and going down them assured your life would be threatened.

While the market devises new ways to hoodwink investors, I am sitting calmly and biding my time with low cash reserves. My book was flat despite the afternoon selling. I should have sashayed back into a short biotech position. It seems so clear now that these so called ‘scientists’ are destined to slowly combust back to their basic molecular state of carbon ash.

Speaking of our good friend carbon, dinosaur bones aka oil is on an insane run. Equally insane is the friend of mine who for the last 2 months has steadily bought about $10k worth of UCO every week. He calls it a long term investment, lol. After weeks of my lambasting him about the bastard nature of leveraged ETFs, he is having a rather deep bellied chortle today. What can I say? Averaging into a spelunking asset isn’t my game.

Option Addict is right. In these conditions you don’t use charts, statistics, or roads (extra Doc Brown). You trade using the prevailing sentiment. Or, like me, you realize how abnormal the situation is and just go into wealth preservation mode aka don’t trade.

I HAVE MADE NO CHANGES TO MY BOOK. Good day good sir.

Nasdaq futures are coming into the week gap down after printing an elevated range on slightly abnormal volume. Price made a hard push lower on the globex open yesterday evening and selling pushed us below Friday’s range before finding buying. Since then 2-way trade has ensued and the session overall looks balanced. We are currently priced to open near last Friday’s low.

The economic calendar is quiet this morning. At 9:45am we have Chicago Purchasing Manager. As the week matures investors will be shifting their attention to Friday morning’s Non-farm Payroll ahead of the Labor Day weekend.

Last week started out with a dramatic gap down and early liquidation. The NYSE invoked Rule 48 Monday-Wednesday to quell volatility and it appears to have helped. Monday’s low pricing turned out to be a bargain. For the rest of the week price essentially traded higher.

Friday we printed a neutral day, barely, after making a second range extension down by about 2-ticks. It was the fourth neutral day in a row.

Heading into today, my primary expectation is for buyer to push into the overnight inventory and close the gap up to 4332.50. Look for some churn defense from the sellers and pushy rotations in both directions (chop) throughout the day as OTF postures heading into September. From there look for sellers to continue pushing higher to close the open 8/20 gap up at 4363.50.

Hypo 2 buyers struggle to close the overnight gap as sellers are seen defending the 4300 century mark. Seller make a move to target overnight low 4270.25 setting up a slow grind lower to target 4218.25.

Hypo 3 is a summer grinder, marking time today to burn up the month. Look for range trade from about 4280 – 4325.

Levels:

After four laborious weeks of working my edge, it is with great pleasure that I am presented with no such information after this weekend’s research. Instead I can finish riding this ridiculous bounce then resume being the lazy man I was destined to be.

When I first started trading full time I remember feeling like I had to trade every day. It meant I was busy and doing something, like a punk accountant. If I missed a day because some ridiculous distraction like a dentist appointment or other life task I would fume from the ears. How dare they take me away from my work!?

So dumb, most of the time was spent spinning my wheels.  Nowadays if I don’t have a statistical edge generated by my own manual research paired with the power of 5000 algorithms, then I just don’t trade. It’s cool yeah?

Anyhow, we are in the final throws of summer. Next weekend is labor day, and there are certain fresh waters whispering my name. I am bullish through close-of-business Tuesday then I may cash up and go sit in the woods.

Exodus members, distinguished gentlemen, won’t you go inside our software and read the latest Strategy Session?  I just published it.  Feel free to ping me with your ideas and questions.

Stock markets are set up properly, and conditions are prime for misdirection and Fed one’uppery. This weekend your leaders are meeting in Jackson Hole aka God’s country. Upon arrival they will strip down to their underwears and shoot high powered revolvers in the desert with Dan Blizerian.

After consuming kegged beer, they will convene in a cold conference room to take a long nap. Upon waking, we find out if Janet Yellen saw her shadow. If she did, the September rate hike is off the table.

Pair that with some Chinese shenanigans and you have the makings of a macro explosion to the upside.

I know we joke about the China men and their sham-WOW enterprise, but I happen to know they are entirely dominating the bed market. And we Americans do lots of sleeping. We sleep in all these new homes we are building as we enter the roaring 20’s.

These are golden times. Ones our children will scoff at, wishing they were of age and able to participate.

Act accordingly.

For the first time this week the overnight session is coming in with volume and range below extreme 3^rd sigma. The session was balanced overall with a clear pivot at 4307. Price managed to take out Thursday’s high briefly before rolling back down into two way trade. At 8:30am Personal Consumption/Expenditure stats were out and the initial reaction has been slight selling.

Also up for release today we have the final August read of U of M Confidence and at 1pom the Baker Hughes Rig Count.

Yesterday price opened gap up, out of range from Wednesday. An early short squeeze transitioned into initiative buying before sellers came in and pushed price neutral. At the end of the day buyers ramped back up, fading the second range extension.

Heading into today, my primary expectation is for buyers to work into the overnight inventory to close the overnight gap up to 4329.50. From there look for buyers to take out overnight high 4340.75 then struggle and ultimately roll over at 4349 before two-way summer Friday trade ensues.

Hypo 2 sellers keep price south of the overnight 4307 pivot setting up a leg lower to take out overnight low 4281.75. Look for sellers to target Wednesday’s open gap 4211.25.

Hypo 3 a more muted session, contained within yesterday’s range. Two-way chop fest.

Levels:

These last three days may have been the best market profile mash up ever. You troublemakers don’t stand a chance because you’re stubborn. You don’t learn. Let’s recap, shall we?

Monday – fuck Monday

Tuesday- neutral extreme down, shorts end day with elevated conviction

Wednesday – neutral extreme up, shorts blindsided and now setup to be squeezed

Today, junior – good ole’ fashioned NEUTRAL DAY

I take it back. You learn things. You learn to rely on your perceptions, and the market exists to alter them. Yours is an intelligence handed down from hard lessons. Mine is adherence to statistical probabilities, advanced market structure logic, and objective judgment. Who do you suppose will last 10,000 years, etched into stone by the plebeians?

I have the energy of 225 horses pulsing through my veins. I eat more spinach then 10 men. I could snap a 2×4 across my back like a dead twig. When the market presented a 3^rd neutral after 2 of the low-probability neutral extreme variety you were screwed. Perceptions are heavily weighted toward recent events. Probabilities are foundation stones formed over years. Build yours up and build atop them, else be washed away by the hurricanes of time.

Important Programming Note: My twitter handle has changed to @IndexModel. Be sure to tell your neighbors and friends, but not your wives.

Conditions this morning were perfect for a Morrie’s wig shop short squeeze. Profile alignments are not always so ideal, but when they are you must be ready to strike with conviction and vigor. Now that it is the afternoon we can see that tape speed has been reasonable. This bodes well for the bull camp. Considering the horror this week has already presented, I would be remiss to turn off the fasten seatbelt. If I did passengers would freely roam the cocked pit, purposely touching their bums to others crotches and such. These conditions are more, “Stay in your seat, but go ahead and fill your Bloody Mary to the brim.”

Most of you are in a pickle—a middle seat of sorts. Take the Tesla haters, they are doomed and can resume living in a cave, staring at shadows on the wall. But really it is anyone who lacked the intestinal fortitude to buy a crashing market.

You are now presented with 3 options and they all stink. You can short the rally, sit elbow deep on your hands, or buy atop 5-sometimes-10 percent moves.

I am in no such predicament. Mine is a bit more complicated, yes, but long only, cash low, and eyeballing certain exit strategies, slowly.

I HAVE MADE NO CHANGES TO MY BOOK TODAY.

Nasdaq futures are up heading into Thursday’s trade. The session featured 2-way trade along the upper quadrant of yesterday’s range before buyers came and pushed price about half way into the Friday print. Volume is coming in just a touch below 3^rd sigma, a normalization of sorts, while range is still extreme. At 8:30am GDP data came out better than expected while Personal Consumption stats were in line with expectations. Initial/Continuing Jobless claims (also dropped at 8:30am) was mixed. Third reaction analysis yields a buy after the data.

Also on the agenda today we have Pending Home Sales at 10am.

Yesterday we printed a neutral extreme up day. This print came on the tails of a neutral extreme down day. The neutral extreme day carries the 3^rd highest amount of directional conviction behind the trend day and double distribution trend day. That means sellers carried a high expectation Tuesday afternoon of seeing lower prices. When instead price went gap up yesterday, then neutral extreme up, it created conditions for a short squeeze.

Heading into today, my primary expectation is for a short covering rally initially off the open, buyers pushing higher. Look for price to take out overnight high 4287.75 and target 4300. Then look for sellers to work back in and 2 way trade to ensue.

Hypo 2 the short squeeze triggers real, initiative buying which carries price higher, up to 4342.25. Then sellers come in.

Hypo 3 sellers work into the overnight inventory to take out overnight low 4205.25 and test the odd LVN at 4200. Buyers defend here and 2-way trade ensues south of 4250.

Hypo 4 sellers push down through the odd LVN at 4200 and liquidate down the zipper to target 4130.25.

Levels:

I flipped bias too soon lads. It was last Friday morning. The summer looked promising and I rode the initial bear move down rigorously. After the short was covered I was full puffed chest, so I immediately flipped long. Then I went longer late Friday afternoon. Then I caught the worst case of the Monday’s ever in the history of bad Monday’s.

As a result, despite the Nasdaq being 400 points off the low, I am still about 75 points under water.

My only Monday morning horse, APP, old APPy, is down like 16% and just a consecutive reminder why I should stick to doing what I do best and outsource ‘stock picking’ to the Space Alien Magician and his robot brain trust.

I will take my loss in APP and I will ride my other longs back to glory. Today was all about sitting. I sat and watched my book churn lower while sucking down caramel frappucino and fish salad, the most addicting vice I’ve ever encountered.

Today ended up a neutral extreme up after we printed the opposite yesterday. That’s classic conditions for a short squeeze—a short squeeze that shall propel the Nasdaqari 75 points higher to bail out your boy.

The globex session continues to be active for Nasdaq futures. For a third session we saw price and volume exceed third sigma stats meaning yet another outlier session. Price continued to drift lower after the bell and managed to push down below Monday’s close before finding buyers ahead of the low. From there forward price pushed higher. Heading into the Durable Goods data [8:30am] price was back up to yesterday’s midpoint. The initial reaction to the data is buying

Also on the agenda today we have crude oil/distillate inventories at 10:30am and tomorrow we hear the first round of GDP data.

Yesterday we printed a neutral extreme down. Price opened gap up and pushed higher in the morning to close the weekend gap up at 4197.75. From here we formed a slight excess high then rolled over. Initially buyers defended the second range extension around 4120 and pushed back to the mid, but ultimately sellers overwhelmed the bid and we cascaded lower into the bell.

Heading into today my primary expectation is for buyers to push off the open. Look for sellers to defend from 4134.75 – 4144.50 then roll over to target 4080.

Hypo 2 buyers push up through 4144.50 setting up a move to 4180.

Hypo 3 sellers push off the open, take out 4100 early and target 4050.

Levels: